The findings in the first true materiality ESG analysis

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Here’s an excerpt from this note from Sasja Beslik:

A company is assigned a certain risk and opportunity profile, which is translated into an alphabetic or a numerical rating. Depending on the analytical model used by an asset manager (passive, active, bottom up, thematic, quantitative, etc) ratings and/or underlying ESG data can be trenched, skewed, or extracted and transformed (with a large portion of estimates) into the portfolio management decision-making process.

All investment decisions are forward-looking, based on expectations that Company X will reach or exceed certain targets and, in that process, the investor will gain certain profit relative to the starting point of the investment. In principle, investors using current ESG datasets are making forward-looking investment decisions based on ESG datasets covering past ESG (mostly risk) management performance of the company. Certain ESG data relating to information on products and services are limited, and when available, they are often unconnected to the company’s overall growth strategy for specific client, market or geography segments.

In other words, there is no connection between what, where and how a company plans to grow and how ESG measures deployed by the company will enable, hinder or prevent further growth.

These are so-called “ESG-unknowns” and addressing these questions should lead to further integration of ESG into the core of any company’s business and core of financial analysis.